DoJ files suit against Apple and 5 publishers; Statement by Macmillan's John Sargent

According to Blomberg, the DoJ has filed an anti-trust suit against Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster in the New York Federal District Court. The suit alleges collusion in ebook pricing.

The article doesn’t say much more, as all parties have denied comment.

Today the Department of Justice filed a lawsuit against Macmillan’s US trade publishing operation, charging us with collusion in the implementation of the agency model for e-book pricing. The charge is civil, not criminal. Let me start by saying that Macmillan did not act illegally. Macmillan did not collude.

We have been in discussions with the Department of Justice for months. It is always better if possible to settle these matters before a case is brought. The costs of continuing—in time, distraction, and expense— are truly daunting.

But the terms the DOJ demanded were too onerous. After careful consideration, we came to the conclusion that the terms could have allowed Amazon to recover the monopoly position it had been building before our switch to the agency model. We also felt the settlement the DOJ wanted to impose would have a very negative and long term impact on those who sell books for a living, from the largest chain stores to the smallest independents.

When Macmillan changed to the agency model we did so knowing we would make less money on our e book business. We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there.

It is also hard to settle a lawsuit when you know you have done no wrong. The government’s charge is that Macmillan’s CEO colluded with other CEO’s in changing to the agency model. I am Macmillan’s CEO and I made the decision to move Macmillan to the agency model. After days of thought and worry, I made the decision on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now.

Other publishers have chosen to settle. That is their decision to make. We have decided to fight this in court. Because others have settled, there may well be a preponderance of references to Macmillan, and to me personally, in the Justice Department’s papers – often without regard to context. So be it.

I hope you will agree with our stance, and with Scott Turow, the president of the Author’s Guild, who stated, “The irony of this bites hard: our government may be on the verge of killing real competition in order to save the appearance of competition. This would be tragic for all of us who value books and the culture they support”.

Since we are now in litigation, I may not be able to comment much going forward. We remain dedicated to finding the best long term outcome for the book business, for Macmillan and for the work you have entrusted to our care.

Of note: Amazon’s basket-pricing model is *explicitly* sanctified and Fictionwise’s discount business model is also back in play.

Don’t expect price-cut Utopia, the BPHs can still price their ebooks to $30 if they choose. And if they don’t mind donating market share to competitors. Plus it’s probably too late for a lot of the ebook reader vendors driven out by the walled gardens but we might actually see some *new* ebook retailers get into the game without having to set up a walled garden. I’m thinking Adobe’s Adept might finally get *some* multivendor traction.

Now to see the EU drop the other boot on the BPHs, preferably hob-nailed.

B&N has shown itself incompetent at making any kind of profit online. From the Wall Street Journal of 23 February:

‘Barnes & Noble Inc.’s latest quarterly results tell a tale of two businesses, with sharply improved profits from its consumer book stores being more than offset by rising investment costs in its digital business.’

‘Barnes & Noble’s digital business reported a loss, before interest, taxes, depreciation and amortization, of $93.7 million, widening from the loss of $50.5 million a year earlier…Barnes & Noble also saw a drop in sales of physical products online in the quarter. Still, strong growth in sales of devices and digital content meant Barnes&Noble.com’s total sales rose 32% to $420 million.’

So B&N’s sales were up 32% year-over-year, while losses were up 85% year-over-year to a record-smashing $94 million – and all of this with agency in place. You will also note that they are hopeless at selling pbooks online, those sales are actually declining.

Promotional sales will not solve a problem as deepset as this. B&N, perhaps due to Riggio’s pride, has decided that it wants to be a force to be reckoned with in ebooks, and have been throwing all the profit their B&M stores are producing into this endeavor. Even with agency this was unlikely to end well. Now they are likely to be gone as early as late 2013. You heard it here first!

@Peter; B&N is not a basket case.
Yet.
If anything, one could argue that the Price Fix scam has been a set of golden handcuffs that kept them from building on their brand loyalty or exploiting their Fictionwise subsidiary. Something as simple (and cheap) as bundling discount coupons for ebooks with their Nook Readers or with pbook purchases is impossible under the Price Fix scam. Take that away and they might be forced to (finally) get creative in ebook sales.
Just because I think they whine too much and throw unseemly tantrums over minor business setbacks doesn’t mean I think they are fated to disappear just yet.
I’m pretty sure they can last at least one more year.

(As long as they get a better handle on their Nook inventories and get some kind of international channel in place ASAP.)

I wonder if doing one’s own app is a way around this. An app for ios, android, amazon android (if amazon allows), mac, windows phone and win8. The app is free and is like a weekly magazine with ad copy and excerpts from this week’s new books. Each book has an in-app “BUY” button. Publisher sets price, Apple, Google, Android, Microsoft get their 30%, and Amazon can stuff itself or go along.

Each publisher or imprint can offer its own app this way. From my reading of the consent agreement, even the publishers who avoided the lawsuit could do this. No law against a publisher directly selling its own books is there?

The app suggestion assumes that all reading will be done on a backlit device as opposed to an e-ink one. I use both and the book needs to be available on both types so that I can go back and forth. Also, an app for each publisher? Sounds like that could get out of hand in a hurry.

I am not optimistic that we will be seeing a lot of price drops from the Big 6 in the near future, especially Penguin who seems to be fighting e-readers to the death.

Who’d have thought it would come to this. In the early days Fictionwise did well enopugh to survive, sell books at discount, offer loyalty rewards program… it was great! Now it is becoming a mean-spirited world for us early adopters, since everyone wants to make the big bucks from eBook users and the growth in the market. Once we were laughed at for reading on devices as small as a Palm, now it’s all the rage. This tooshall pass, I think, and in the end we will all lose! Sad.

asotir – there is and there never has been any barrier against publishers or groups of publishers such as Indie publishers, creating their own app and web site to sell eBooks direct. They just haven’t had the bottle or the vision to do it.
The point about apps and eReaders is valid but only temporary. Also I haven’t met anyone yet who buys much direct from their kindle/reader. They buy via their PC/laptop/tablet.

Retailers understand selling, but apparently the Price Fix Six publishers don’t. Why don’t they leave selling to the people who do it well?

Geographic limitations and price-fixing did enormous harm to every major ebook retailer (except possibly Amazon, who could afford the loss). Yes, higher prices mean larger margins for retailers, but they also mean LESS EBOOKS ARE SOLD. Many, many less ebooks. The total gain is severely reduced.

The question for the Big Publishing is, do you want us to buy and read more of your books, or do you just want us to buy a few expensive “best sellers”? How do your unrealistic ebook prices (unrealistic both in production cost and in customer interest) encourage a love of reading or introduce people to a wide range of authors? Both are aims you claim to espouse, but you systematically undermine them by pricing ebooks out of our reach.

Currently, there are several popular-fiction ebooks I would normally buy, which are priced over $20, while the new paperbacks are $7.99 each. Even at $13-14, you’re pricing ebooks at twice the new paperback price, while allowing purchasers much less than half the functionality (no actual ownership of the book, no resale, no transfer).

Getting back to the John Sargent statement, I can only say that I find it hard to believe that John Sargent would have decided to switch to a sales model that he claims will cause the publishers to lose revenue and income, unless he had a strong reason to believe that most, if not all, of the top publishers were going to also switch. IANAL, but I don’t think the charge of collusion requires the parties to all decide to take the same action at the same time in the presence of one another, but it does require them to communicate and indicate their probable decision in advance. If so, when and where Mr. Sargent made the final decision was irrelevant if the decision was made based on communications that are colluding.

It seems to me that there is far more speculation that fact. The decision by some to settle has clearly been driven by the prospect of costs that would bankrupt them if they fought. Apple has stood firm, but they can afford to. McM is fighting and seem to believe they have a case, though their above statement contains several odd statements. Their inclusion of a quote from the Author’s Guild is also odd, as is the statement “After days of thought and worry, I made the decision”. I would have thought a more comprehensive decision making process would have been appropriate.
Because some have settled, however, it means there has been no definitive establishment of what the law actually is on the topic of the Agency model and the accusation of price fixing, only what the Justice Dept says it is and that dept. has been overturned many times before.
It is good that Apple and McM have decided to fight, imho, because that will force the issue into the courts and have the matter decided on definitively.

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